J.P. Morgan Spoils the Earnings Party

Each Monday, MoneyBeat publishes a short column in the WSJ print edition highlighting a statistic getting traction in the markets. This week’s “Big Number”is 0.8%, the S&P 500′s expected earnings-growth rate, down from 2.8% prior to J.P. Morgan 's results.

Earnings projections for the quarter look more lackluster Monday than they did a week ago. J.P. Morgan Chase & Co. takes the blame.

Third-quarter earnings among S&P 500 companies are now on pace to grow 0.8% from a year ago, according to John Butters, senior earnings analyst at FactSet. That is down from a projected 2.8% as of of Oct. 4 prior to J.P. Morgan’s report.

Strip the bank from the equation entirely and the S&P 500’s current projected growth rate stands to 3.3%.

Profit growth is one of the main pillars that drives stock-market performance. Earnings have grown at a single-digit-percentage rate over the past several quarters and have failed to keep pace with the market’s rally. Some investors worry that if this trend continues, stocks could become overvalued.

The S&P 500 is trading at 14.3 times the next 12 months’ worth of earnings, above the average of 12.9 for the past five years and 14.0 for the past 10 years, according to FactSet. A year ago, the S&P’s P/Ewas 12.9.

Financials were the best-performing group in the second quarter, up 27%, according to S&P Capital IQ. That now seems unlikely to repeat due to J.P. Morgan’s loss.

The financial sector’s earnings are expected to decline by 3.5%, on pace for the second-worst performance in the S&P 500. Prior to J.P. Morgan’s results, financials were expected to increase by 8.9%, which was tops in the S&P 500.